Being Hyper Local vs. Chasing Big Market

One thing I’ve once again recognized from yesterday’s event was strength of being hyper local.

Amongst 9 startups that pitched on stage, Hong Kong-based ButterBoom caught my eyes. They said it started as a fashion blog site covering celebrity photos, luxury shops and related stories in the region. The service offered by the startup can be particularly useful to those who are traveling and shopping in Hong Kong. At the end of the pitch they talked about their intent to expand business to other cities in Asia.

Being hyper local may sound against fundamental strategy that startup has to always think bigger because the bigger market size startup is aiming, the better chance there is for startup to become a billion dollar company.

To realize this, initial set of questions any investor asks you always includes “What is your market size?” Therefore, you are so tempted to say “Sir, we are looking at XXX million dollar market.” You say this because you want to attract investors by giving impression that your startup will grow like anything and become a billion dollar company in the future.

Unfortunately, reality is completely opposite. Startups aiming at such big market right from the beginning never succeed. If you design your product just for everyone in favor of big market, probably you will face difficulty with attracting people for long time.

Instead, design your product to very specific group of people. Say communication app for people who have their parents needing daycare service but those who are unable to speak or write. Market size may not look big enough initially. However, this kind of service is not easily replaceable by others and people will gladly pay for product as long as it removes their core pain.

While you design your product this way, important thing is that you need to look at something ‘repeatable’ and ‘scalable’ at later stage of startup cycle. By repeatable it means product can be replicated at different location to a slightly different group of people. By scalable it means company can increase size of business by pouring more money into cost factors (e.g. marketing, sales, development.) You can always start your business in small area or with small group of people, copy it to somewhere else and then scale it once your business model is verified.

So the better answer to above question is “Sir, we will become a billion dollar company but we need to start with this niche market because…” Facebook wasn’t designed for everyone initially. It was a website exclusive to students at Harvard. Telsa did not aim at wider audience of business person with model S initially. Instead, it captured enthusiastic fans of electric sport car. These companies repeated what’s already working and scaled it until no other competitor can catch up. Same thing can be applied to any product or service.

Hence, there is nothing wrong with being hyper local. It’s just a matter of how you draw a path from the point where you started to the point where you want to reach.